Impacts of Multi-Fiber Arrangement Removal on Textile & Cotton Trade

Slide Presentation of a Poster Presentedat the Annual Meetings of the

Southern Agricultural Economics AssociationOrlando, Florida – February 6-8, 2006

Yan Xia, and Parr RossonCenter for North American Studies

Dept. of Agricultural Economics, Texas A&M University

Multi-Fiber Arrangement (MFA)

Protect Importing Countries’ Textile SectorProtect Importing Countries’ Textile Sector Caused an increase in the textile & apparelCaused an increase in the textile & apparel prices in importing countries, a decrease inprices in importing countries, a decrease in the prices in exporting countries andthe prices in exporting countries and reduction in trade volume.reduction in trade volume. Emerged into WTO’s Agreement on TextileEmerged into WTO’s Agreement on Textile Clothing from 1995Clothing from 1995 Removal of all MFA Quotas by Jan. 2005Removal of all MFA Quotas by Jan. 2005 Impact on Textile/Apparel Trade & CottonImpact on Textile/Apparel Trade & Cotton MarketMarket

Objective

Analyze and Quantify the ImpactAnalyze and Quantify the Impact of Elimination of the Multi-Fiber of Elimination of the Multi-Fiber Arrangement on Textile, ApparelArrangement on Textile, Apparel and Cotton Market with Alternativeand Cotton Market with Alternative ScenariosScenarios by Using Equilibriumby Using Equilibrium Displacement Model (EDM)Displacement Model (EDM)

The United States

Leading Textiles & Leading Textiles & Apparel ImporterApparel Importer

10.6% & 31.7% of 10.6% & 31.7% of world T&A world T&A Imports, 2002 Imports, 2002 (WTO)(WTO)

Decade Trend of Decade Trend of Import ExpansionImport Expansion

Exports Remain Exports Remain Steady (ERS)Steady (ERS)

Leading Cotton Leading Cotton ExporterExporter

41.82% of world 41.82% of world cotton exports, 2003 cotton exports, 2003 (NCC)(NCC)

Cotton Exports Cotton Exports IncreasedIncreased

Domestic Domestic Consumption Consumption Declined (ERS)Declined (ERS)

U.S. Cotton Textile Trade

U.S. Cotton Exports & Share of World Trade

U.S. Cotton Mill Use

People’s Republic of China

Largest textile exporter to the U.S. under MFA 19.62% of U.S.

textile/apparel imports, 2003 (AMTAC)

Third largest importer of U.S. cotton 28% of U.S. cotton,

2003 (FAS)

Accession into the WTO Textile: Quota-free

access to the U.S. and EU market, but still with tariff

Cotton: Agree to reduce TRQ on cotton imports

U.S. Farm Program Direct Payment

Fixed Decoupled from current production (ERS)

Counter-Cyclical Payment

CCP rate = Target price – (DP rate + max{loan rate, price}) Reduce revenue variability and risk

Loan Deficiency Payment Fixed Directly coupled to current production Incorporated in the simulation

Scenario 1:Removal of MFA quota U.S. import demand for textiles (.2396, .2416) U.S. import demand for apparel (.3513, .3524) U.S. domestic demand for textiles (-.0382, -.0374) U.S. domestic demand for apparel (-.2593, -.2591) U.S. import price of textiles (-.1863, -.1855) U.S. import price of apparel (-.2213, -.2194) China textiles export supply (.3455, .3454) China apparel export supply (.30, .3165) U.S. cotton price (-.0169, .0028)World adjusted cotton price (.0043, .0201) U.S. cotton supply (-.0079, .0013) U.S. demand for domestic cotton (-.1281, -.1217) China’s demand for U.S. cotton (.1037, .1737) AO’s demand for US cotton (.0942, .1014)

Scenario 2:Removal of MFA, and

3% decrease in LDP U.S. import demand for textiles (.244, .2604)U.S. import demand for apparel (.3419, .3503)U.S. domestic demand for textiles (-.046, -.039)U.S. domestic demand for apparel (-.2607, -.2595)U.S. import price of textiles (-.1847, -.1786)U.S. import price of apparel (-.2175, -.2030)China textiles export supply (.344, .360)China apparel export supply (.332, .458)U.S. cotton price (.0243, .1794)World adjusted cotton price (.035, .156)U.S. cotton supply (-.019, .054)U.S. demand for domestic cotton (-.179, -.132)China’s demand for U.S. cotton (.112, .651)AO’s demand for US cotton (.057, .104)

Scenarios 3: Removal of MFA, 5% increase in foreign cotton supply

U.S. import demand for textiles (.234, .2405)U.S. import demand for apparel (.3538, .354)U.S. domestic demand for textiles (-.0376, -.0374)U.S. domestic demand for apparel (-.2602, -.26)U.S. import price of textiles (-.1868, -.1866)U.S. import price of apparel (-.2223, -.2219)China textiles export supply (.3682, .3704)China apparel export supply (.2807, .2831)U.S. cotton price (-.0186, -.014)World adjusted cotton price (-.0143, -.012)U.S. cotton supply (-.044, -.0332)U.S. demand for domestic cotton (-.1311, -.1248) China’s demand for U.S. cotton (.0003, .0597)AO’s demand for US cotton (.0461, .0493)

Scenario 4: Removal of MFA, 3 % decrease in LDP & 5% increase in foreign cotton supply

U.S. import demand for textiles (.2413, .2416)U.S. import demand for apparel (.3535, .3537)U.S. domestic demand for textiles (-.038, -.0379)U.S. domestic demand for apparel (-.2605, -.2604) U.S. import price of textiles (-.1865, -.1863)U.S. import price of apparel (-.2215, -.2212)China textiles export supply (.3736, .3748)China apparel export supply (.286, .2874)U.S. cotton price (-.0073, -.0048)World adjusted cotton price (-.0092, -.0078)U.S. cotton supply (-.0473, -.0413)U.S. demand for domestic cotton (-.133, -.1305)China’s demand for U.S. cotton (.0099, .0442)AO’s demand for US cotton (.0315, .0361)

Conclusions – Textile & Apparel Market

The United States

Increase in import demand

Decrease in domestic demand

Decrease in import price

China

Significant increase in export supply with different export mix of textile and apparel

Take a larger market share

Conclusions – Cotton Market

Decrease in LDP rate affected future U.S.cotton price and adjusted world price

Demand for cotton U.S. Domestic demand continue falling Increase in China and AO with different import mix depending on the presence of increase in foreign cotton supply

U.S. cotton supply decreased slightly

More Conclusions

U.S. cotton sector evolves from a primary

supplier to its textile industry to a stronger

exporting competitor in the global market Policy shock in textile market, MFA quota

elimination, have significant impact on cotton

(input) market Policy shock in cotton market, decrease in

LDP rate, doesn’t have explicit effect on

textile market

For More Information, Please Contact Yan Xia at sonataxia@tamu.edu, orParr Rosson at prosson@tamu.edu